Monetizing intellectual property rights for food startups

Once you’ve familiarized yourself with the four traditional areas of intellectual property rights and how to protect them (see Part 1 of our Recipe for Success series), you’ll want to turn your mind to monetizing your intellectual property. When creating a monetization strategy consider what is likely to be the most valuable aspect of your intellectual property. Is it your brand recognition, customer loyalty, patented process, recipes, or something else?

Part 2 of this Recipe for Success series sets out various ways intellectual property rights can be monetized in the food industry.

Internally leveraging intellectual property

Internally leveraging your intellectual property means finding additional ways to generate revenues from your existing intellectual property. To do this you need to understand what makes your company unique and differentiates it from others; what is your “secret sauce” that keeps bringing people back to your product instead of other, similar products. Many startups will find it’s a combination of their brand name, which is almost always trademarked, and customer loyalty that can be leveraged in various ways.

A common way restaurants do this is by leveraging their reputation and customer loyalty to generate new revenue streams. For example consider Nando’s PERi PERi chicken or the Keg’s Caesar salad, two items known by the general population for their popularity and taste. Both restaurants have literally taken the “secret-sauce” from these menu items and made them commercially available to consumers through other channels. The Keg is not the first nor the last to make a Caesar, and peri peri is a traditional African sauce. These brands, however, have leveraged their unique take with their brand following to create a product that consumers can rely on returning to in the grocery aisle for consistency in flavour and quality.

Another common method used by chefs and restaurants is to leverage their name and recipes to create cookbooks available for purchase.  One of the most famous restaurant cookbooks is The French Laundry Cookbook featuring recipes from the restaurant and head chef Thomas Keller. Cookbooks give these companies the ability to tap into new markets that were previously unreachable due to geographic or economic constraints. Recall that a recipe in and of itself will not be subject to protection. The first level of benefit that a chef or restaurant will achieve from an outstanding recipe is demand for the dish in the restaurant, and the reputational benefit that goes along with the recipe and resulting dish itself. Publishing a cookbook is a repurposing of the recipe, in combination with the brand reputation to once again create a new revenue stream, which is also a marketing opportunity for the restaurant or chef.

Recently, virtual kitchens have popped up to serve the masses of people seeking take out or delivery options during the COVID-19 pandemic. Many restaurants have lent their name and branding to ghost commercial kitchens to create their menu items. These meals are often not coming out of the same kitchens patrons would visit for in-person dining, but they are familiar with the food to expect from the brand. On the other end of this spectrum are pop-up virtual brands, whereby many well established chains have used ghost kitchens and a completely new and separate branding strategy to try out new lines of product and meals to test the waters without risking the loyalty and reliance on their flagship brand.

Externally leveraging intellectual property

Externally leveraging your intellectual property means allowing third parties to use your intellectual property rights in exchange for a fee. For many companies their name or a product name may be their most valuable asset and they will license their trademarks or patents to others in exchange for royalties. For food and beverage companies looking to license their brand name, they can consider food to food licenses or food to non-food licenses.

There are a lot of well known consumer packaged goods that aren’t actually created or sold by the brand itself, for example Oreo ice cream is produced and sold by Nestle, but the Oreo trademark is owned by Nabisco. Without the license to use the Oreo name, Nestle would only be able to market the product as cookies and cream ice cream, no different than ice cream made by any other producer. The ability to use Oreo allows Nestle to leverage Oreo’s brand loyalty and name, and is something Nabisco is more than happy to charge Nestle for. In addition to receiving a licensing fee, the product also generates positive brand value for Nabisco.

Other examples may be found in the more recent expansion of cannabis edibles and related food products. Cannabis regulations make it onerous for a food-first company, like a confectioner, to meet regulatory requirements to enter the cannabis market just to create a CBD chocolate. Meanwhile food safety regulations are not a focal point of the cannabis business. Together, cannabis and food companies have joined forces to cross license and co-brand products, with each leveraging the other’s know-how and brand recognition to produce edible products that attract each company’s loyal consumers.

Aside from these sorts of crossover products, many brands also grow beyond their food-based origins, and enter into the realm of pure merchandising. Pepsi, for example, is an over 120 year old brand which still indicates a specific carbonated soft drink. But is also a lifestyle brand, that consumers can find printed across nearly any conceivable consumer good. Pepsi doesn’t need to manufacture t-shirts or Frisbees or Converse sneakers or pillows or anything else. All they need to do is license their brand to once again generate new revenue streams, while also feeding and building their consumer loyalty. For more information on licensing see our article on mastering the elements of good licensing.

Share or asset sale

Intellectual property rights make up a key component of the assets of a business. A company may sell these rights either as a part of a sale of the shares of a company (which holds all right and title to these intellectual property rights) or as part of a sale of specific assets, which may include some or all intellectual property rights, and licensing, distribution, and other rights related thereto.  However, doing this often means you are selling your key business and intend to move onto a new venture or business or plan to continue on with the acquirer. This is a common exit strategy for many founders once the startup has reached a certain level of growth and success. Other entrepreneurs may make a business itself of developing intellectual property expressly for sale to other operating businesses.  

Takeaway

There are a few key things to remember when monetizing your intellectual property rights:

1. Be careful not to dilute the value of your intellectual property rights by oversaturating the market. If your “secret sauce” is your brand every product with your name on it will impact your value. Will the new revenue streams be additive to your bottom line, or are you competing with yourself by splitting your current revenues with no ability to grow?
2. Don’t partner with third parties that create negative effects on your intellectual property rights. Be sure products with your name on it align with your mission and impact statements and fit within your quality standards.Consider your name a stamp of approval or an attestation that a product is of a certain quality. If your brand is on products of poor quality, unrelated to your company’s vision or associated with a plethora of products, you can lose consumer trust and therefore brand value rather than generate value.
3. Licensing arrangements require frequent monitoring to make sure licensees are complying with the agreed upon terms and not using the intellectual property contrary to those terms. Your company should have someone responsible for monitoring licensees and keeping on top of the various agreements in place. We will touch on more issues related to ongoing IP protection in a later article.

Other installments in our Recipe for Success series cover ongoing monitoring, protection, and enforcement of your IP Rights.